Types of Arbitration

Arbitration has emerged as a popular method for resolving disputes due to its efficiency, flexibility, and binding nature. Unlike traditional civil or criminal cases, disputes in arbitration are resolved by an arbitration tribunal without court involvement. This article discusses the different types of arbitration, categorised based on jurisdiction and procedural frameworks.

What is Arbitration?

Arbitration is a process in which disputing parties agree to resolve their conflicts outside the traditional court system. An impartial tribunal or arbitrator is appointed to make a binding decision on the matter. This method offers several advantages:

• Swift resolution of disputes.
• Flexibility in choosing rules and procedures.
• Confidentiality, unlike open court proceedings.
• Enforceability, as arbitral awards are binding and generally cannot be appealed.

What are the Different Types of Arbitration?

Different forms of arbitration can be broadly categorised based on jurisdiction and procedural approaches. Let us explore each type in detail.

Types of Arbitration Based on Jurisdiction

Domestic Arbitration

Domestic arbitration occurs when both parties involved in the dispute are Indian, and the arbitration proceedings take place in India. While the Arbitration and Conciliation Act, 1996, does not explicitly define domestic arbitration, it is implicitly governed by Section 2(2). Key characteristics include:

• The proceedings are conducted within Indian territory.
• Indian procedural and substantive laws apply.
• Parties agree to resolve disputes arising within India.

Domestic arbitration is commonly used for resolving disputes in business contracts, employment agreements, and property disputes within India.

International Arbitration

International arbitration involves disputes that transcend national boundaries. This type of arbitration occurs outside the domestic territory due to:

• A contractual clause specifying arbitration in a foreign country.
• Foreign elements in the dispute, such as parties from different nations or transactions conducted internationally.

The applicable law—Indian or foreign—depends on the circumstances leading to the arbitration. International arbitration provides flexibility for parties to choose a neutral venue and governing laws, making it ideal for cross-border transactions and multinational agreements.

International Commercial Arbitration (ICA)

According to Section 2(1)(f) of the Arbitration and Conciliation Act, international commercial arbitration arises from a dispute involving a commercial contract where at least one party is:

• A foreign national or entity.
• Residing or headquartered in a foreign country.
• Managed by foreign individuals.

Under Indian law, ICA applies when:

• The arbitration takes place in India.
• At least one party is a foreign entity.

However, Part I of the Act does not apply to ICAs conducted outside India. The 2015 Amendment clarified that companies incorporated in India, even if controlled by foreign entities, are considered Indian entities. For instance, in TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd. (2008), the Supreme Court ruled that companies registered in India cannot be classified as foreign entities for ICA.

Types of Arbitration Based on Procedures and Rules

Ad-Hoc Arbitration

Ad-hoc arbitration is the most common form of arbitration in India. It is characterised by its flexibility and cost-effectiveness. In this method:

• Parties mutually agree to resolve disputes without institutional involvement.
• Rules and procedures are decided by the parties themselves.
• Arbitration is tailored to the specific needs of the case.

Key provisions under Indian law include:

• Section 6: Parties or tribunals can seek administrative assistance from institutions or individuals.
• Section 11: Arbitrators’ fees are determined by an arbitral institution as per Schedule 4.

Advantages of ad-hoc arbitration:

• Low cost compared to institutional arbitration.
• Greater control over procedures.

Challenges:

• Lack of pre-determined rules may lead to delays.
• Requires experienced arbitrators to manage proceedings effectively.

Fast-Track Arbitration

Fast-track arbitration was introduced by the Arbitration and Conciliation (Amendment) Act, 2015, to address delays and inefficiencies in traditional arbitration processes. Key features include:

• Time-Bound Resolution: The arbitrator must deliver the final award within six months of the dispute being referred.
• Sole Arbitrator: Parties appoint a single arbitrator with mutual consent.
• Simplified Procedures: Relies primarily on written submissions; oral hearings are conducted only when necessary.

Fast-track arbitration is governed by Section 29B of the Act and is particularly effective for commercial and trade disputes requiring speedy resolution.

Advantages:

• Saves time and costs.
• Reduces procedural complexities.

Institutional Arbitration

Institutional arbitration involves resolving disputes through established arbitral institutions, which provide procedural frameworks and panels of experienced arbitrators. Examples of prominent institutions include:

• Chartered Institute of Arbitrators (UK).
• London Court of International Arbitration.
• Singapore International Arbitration Centre.
• International Court of Arbitration (Paris).

Process:

• Parties agree to arbitration under the institution’s rules.
• Arbitrators are appointed from the institution’s panel based on the case’s requirements.

Advantages:

• Pre-defined rules ensure consistency and efficiency.
• Expertise of arbitrators leads to better outcomes.
• Administrative support reduces delays.

In M/S Nandan Biomatrix Limited v. D 1 Oils Limited (2009), the Supreme Court upheld the validity of institutional arbitration even when the specific institution was not named in the agreement.

Challenges:

• Higher costs compared to ad-hoc arbitration.
• Limited flexibility in choosing rules and procedures.

Comparison of Types of Arbitration

Conclusion

Arbitration offers a versatile and efficient alternative to traditional litigation, catering to a wide range of disputes. The choice of arbitration type—domestic, international, ad-hoc, fast-track, or institutional—depends on the nature of the dispute, the parties’ preferences, and the desired outcome.

• Domestic arbitration is ideal for disputes confined within India.
• International arbitration facilitates resolution for cross-border disputes.
• Ad-hoc arbitration offers flexibility and cost-effectiveness.
• Fast-track arbitration ensures speedy resolution for commercial disputes.
• Institutional arbitration provides a structured approach with administrative support.

By understanding the nuances of each type, parties can make informed decisions to achieve fair and efficient dispute resolution.